The above tweet references a post that references a comment by Victoria Ferauge:

Clearly a potential immigrant to the U.S. with assets in the home or a third country would have to have a special kind of insanity to subject himself to this system with all the paperwork and potential for double-taxation. And it would do this person absolutely no good whatsoever to become a U.S. citizen since this would change nothing. On the contrary, being a citizen would actually make it worse – one might shed a Green Card relatively easily (if done before the immigrant acquired too many assets in the U.S. or abroad) but U.S. citizenship is forever unless one renounces.

You know, if I were tasked with designing a system with the maximum number of disincentives in order to prevent educated immigrants with existing assets to come to the U.S., I doubt could have done better than this. While this system has existed for some time, it was not well known until FATCA brought all these issues to light and the IRS actually started enforcing the rules. Most immigrants were never aware of them and many are now in a terrible position made all the worse because they cannot vote. I wonder if the French diaspora in the U.S. has brought this up with Mr. Courtial.

As for potential immigrants like my spouse, they have a lot of thinking to do. I suspect that the young, educated, childless ones will continue to go to the U.S. but I doubt they will naturalize and surely they will have every interest in limiting their stay. Older experienced workers with families and assets in the home country will probably avoid the U.S. in favor of places like Singapore or Canada.

In 2006, Charles Bruce was one of the authors of a remarkably prescient article about the “Exit Tax”. Rather than write about the “Exit Tax” from the perspective of punishing the small number of U.S. residents who might expatriate to avoid taxes, Mr. Bruce focused on how the “Exit Tax” would affect the majority: citizens and residents of other nations with a U.S. place of birth. His warnings to NOT enact an Exit Tax were ignored. Today the S. 877A “Exit Tax” overwhelmingly affects Americans abroad which include accidental Americans. The article also noted how an “Exit Tax” would affect incentives to immigrate to America.

The article included:

Imposition of an exit tax will discourage highly skilled immigrants from coming to and staying in the United States.9 An exit tax will cause people wanting to work in the United States to avoid applying for a green card.

The avenue of choice will become one of the nonimmigrant visas. Those include specialty workers (H-1B), intracompany transferees (L-1), treaty traders and investors (E-1/E-2), persons of extraordinary ability (O-1), artists and entertainers (P-1/-2/-3), religious workers (R-1), and North American Free Trade Agreement treaty professionals (TN). The system will become more problematic and more arbitrary. The H-1B category is already overrun. The treaty trader/treaty investor (E-1/E-2) category is only available to nationals of a country that has a Treaty of Friendship, Commerce, or Navigation or equivalent treaty with the United States.10 Aspects of the exit tax, as a practical matter, are frankly unenforceable. Since the tax is not actually collected before or at the time of expatriation, if it is not paid, it will in all likelihood have to be collected from an individual living outside the United States with assets outside the country. There is no mechanism for doing that. A U.S. individual receiving a bequest from her aunt in Germany has no way of knowing reliably that her aunt resided years ago in the United States as a legal resident for eight or more years before leaving. How can the IRS realistically hope to catch transfers that pass from the aunt to someone else, from that person to a third person, and from that person to the U.S. recipient? Those cases involve individuals and families, not big companies with audit committees and armies of accountants and attorneys, all subject to the Sarbanes-Oxley rules. Also, since the exit tax creates a deemed sale, often it will engender difficult valuation problems.

The above tweet references a comment by a former Green Card holder who left the United States because of the Exit Tax. The post is called “All Roads Lead To Renunciation” and is about the renunciation of a “long term” U.S. citizen living abroad.

The_Animal1970 wrote: By that reasoning, I should be grateful to the thief who breaks into my home in the night and robs me blind for “teaching” me how valuable my possessions are.

Sorry, but that comment makes no sense at all.

Look, I genuinely share all of your outrage at the pain and suffering that the US has wrought with its ridiculous policy of CBT, now backed up by the FATCA jihad. Really, I do. I have taken my share of knocks in this area as well, up to what amounted to a nervous breakdown and a prolonged period of anxiety/depression. And even though I saw the writing on the wall and got out nearly a decade ago now, I remain bitter about the way the US tax system treated me (which is why I continue to lurk and post here). It is just that you are wasting good — and righteous — anger here on an inappropriate target. It would be far better to save it for those actually responsible for all of this mess.

Conclusion …

The “Exit Tax” has created an America where:

1. Those considering immigrating to America must accept the reality that, after eight years which results in becoming a “long term resident“, they may not be able to leave without paying an “Exit Tax”; and

2. Those who have immigrated to America must abandon their Green Card before they have lived there for eight years. Otherwise they may have to pay an Exit Tax.

The “foreign asset reporting requirements” have created an America where:

All these people have exactly the same tax and reporting obligations on their worldwide income. Yes, my friends, an immigrant or a Green Card holder living in the U.S. must report his or her worldwide income to the American IRS, report all his or her foreign bank accounts (even ones back in the home country) and is impacted by FATCA in much the same way as U.S. citizens.

To give you some idea of how this might work in practice, let’s consider a hypothetical situation where my foreign spouse and I return to the U.S. Upon receiving his Green Card my spouse would be:

1. Required to disclose all his U.S. income AND anything he earned in France (interest, dividends, rents) on assets he acquired before entering the United States. Depending on the type of income, he may be required to pay U.S. taxes on that French income.
2. Required to fill out an FBAR(Foreign Bank Account Report) disclosing all of his accounts in France and the balances.
3. And finally he would be required to fill out the new form 8938(FATCA requirement) revealing his “foreign financial assets” (in other words just about anything he has in France).
4. Last but not least, in theory his bank in Paris would be required to turn over his account information in France to the IRS since by accepting a Green Card and residing in the U.S. he is a U.S. Person (not a citizen, mind you).

Not a pretty picture is it? Failure to comply with the above may result in draconian penalties even if no tax is due. I had no idea the U.S. tax system worked this way for immigrants and, I assure you, neither did my French spouse.

‘By the way, old boy,’ he said. ‘I hear that little beggar of mine let fly at you with his catapult yesterday. I gave him a good dressing-down for it. In fact I told him I’d take the catapult away if he does it again.

‘I think he was a little upset at not going to the execution,’ said Winston.

‘ Ah, well — what I mean to say, shows the right spirit, doesn’t it?
Mischievous little beggars they are, both of them, but talk about keenness! All they think about is the Spies, and the war, of course.
D’you know what that little girl of mine did last Saturday, when her troop was on a hike out Berkhamsted way? She got two other girls to go with her, slipped off from the hike, and spent the whole afternoon following a strange man. They kept on his tail for two hours, right through the woods, and then, when they got into Amersham, handed him over to the patrols.’

‘What did they do that for?’ said Winston, somewhat taken aback. Parsons went on triumphantly:

‘My kid made sure he was some kind of enemy agent — might have been dropped by parachute, for instance. But here’s the point, old boy. What do you think put her on to him in the first place? She spotted he was wearing a funny kind of shoes — said she’d never seen anyone wearing shoes like that before. So the chances were he was a foreigner.
Pretty smart for a nipper of seven, eh?’

‘What happened to the man?’ said Winston.

‘Ah, that I couldn’t say, of course. But I wouldn’t be altogether surprised if-‘ Parsons made the motion of aiming a rifle, and clicked his tongue for the explosion.

I was reading an article this evening which reminded me I had never taken the time to really learn what was involved after World War II and the Bretton Woods. I need to trace back to a point before the IMF and the OECD were involved in developing globalization policy, especially when countries sign onto these rather than being the originators of the policies. At any rate, talk about procrastination, the post I had intended to read was put up 2 years ago! However, the more one delves into all the accompanying issues of complying with US tax and reporting requirements, etc, the more one comes into awareness of why the US (thinks) has the power to do what it does.

Thanks for a great article. You have used FATCA as a particularly egregious example of the propensity of the President to either ignore law or make law himself. The Obama presidency is one characterized by a rogue President who does what he wants, when he wants and to whom he wants.

One interesting example is the recent 10 billion dollar fine which he personally levied against the French Bank BNP. This is described in “The Economist” as follows:

“WHAT is the appropriate penalty for a firm that abets genocide? Roughly a year’s profit and the sacking of a dozen employees, the American authorities concluded this week. At any rate, that is the punishment meted out to BNP Paribas, a French bank that pleaded guilty to helping the Sudanese government sell oil, clearing proceeds through New York in violation of American sanctions. At the time government-backed militias in the region of Darfur were massacring civilians by the tens of thousands.”

What’s interesting that the bank was fined NOT as a result of a direct act of Congress, but as a fine levied as Executive Order 13622, by President Obama himself, found here:

Interestingly, the U.S. is claiming jurisdiction over the French Bank on the basis that the bank was using U.S. dollars.

To put it simply we have a situation where:

1. President Obama decides to impose a 10 billion fine on a French Bank; and

2. He claims jurisdiction over the bank on the basis that the bank was using U.S. dollars.

Leaving aside the troubling issue of Obama acting as though he is a “law unto himself”, it is obvious that the U.S. can no longer be trusted enough for the USD to be the main reserve currency. The erosion of the status of the USD is well under way.

The threat of FATCA sanctions levied at non-U.S. banks will exacerbate that trend.

Thanks again for a great article!

How the U.S. uses the dollar as to regulate foreign banks by “its very nature benefit U.S. citizens

1. U.S. law prohibits a non-U.S. bank from performing certain acts or dealing with certain people.

2. That bank performs an act that U.S. law prohibits

Then,

That bank is liable to a private “U.S. citizen” plaintiff for damages.

The article includes the following:

In a unanimous verdict late Monday, a federal jury agreed that Jordan-based Arab Bank violated U.S. anti-terrorism laws in conducting business with Hamas-linked “charities.”

Some Israelis refer to Arab Bank as the “Grand Central Station of terrorist financing.”

It is the first case that successfully employed the strategy of going after terrorists by suing a major bank that allegedly did business with them. More than 300 U.S. nationals were part of the landmark terrorism trial that began last month in New York.

Some Israelis refer to Arab Bank as the “Grand Central Station of terrorist financing.” The plaintiffs or their family members were injured or killed in terrorist attacks while visiting Israel between 2000 and 2005 during the second intifada or Palestinian uprising.

In finding the bank guilty of violating anti-terrorism laws by providing material support to Hamas, jurors rejected Arab Bank’s key defense that it had no way to know some of its clients were using its accounts to provide payoffs for terrorist acts.

Nobody likes violence, but …

I suggest that there is a broader principle at play here. Can the U.S. government be permitted to regulate the conduct of foreign banks? In his book, “Treasury’s War“, Juan Zarate details how the U.S. government, rather than going after the “bad guys”, goes after those who do business with the “bad guys”.

The jurisdictional basis for the U.S. Government asserting jurisdiction over non-U.S. banks

Now, any “right thinking” person would wonder:

How can the U.S. government regulate foreign banks?

How can the U.S. government imagine that it can impose FATCA on the world and use FATCA Sanctions as an instrument of foreign policy?

The answer is … It’s about the “reserve currency stupid!”

Why Canada (and world) need to push 4 truly multilateral financial system http://t.co/atb03aX1hs – End domination by few at expense of many

On of the 70th anniversary of the July 1, 1944 Bretton Woods conference – the landmark gathering that created the International Monetary Fund (IMF), the World Bank and later the World Trade Organization (WTO) – it’s hard to know whether it’s the best or worst of times for multilateralism.

Bottom line – On July 1, 1944 the U.S. dollar became the world’s primary reserve currency. Until it is replaced (which is coming) the U.S. dollar is and will be the oxygen of the financial system.

Countries need access to the U.S. dollar which allows the U.S. government to abuse that need. If you want to use our dollar, then you must do what we want! If you use our dollar and violate our laws, we will punish you.

@MiaChupacabra @USCitizenAbroad Here is a little exec order for the new President of France http://t.co/t9bp9q7zow

— BancdelAsteroideB612 (@BancB612) July 1, 2014
One of the most egregious examples of the U.S. abusing the status of the dollar as the primary reserve currency is the case of the French Bank PNB Paribas. This bank was subjected to a 9.9 billion dollar fine, by a U.S. law that allowed President Obama to be a “law unto himself”. In others words, the fine was effectively levied by Obama.

BNP Paribas in the dock: No way to treat a criminal |Economist http://t.co/mGqE4ASxUQ – America’s legal system looks like extortion racket

America is playing a very dangerous game indeed.It currently has the “exorbitant privilege” of having the worlds reserve currency. The economic dominance that made this so is already declining. By running this sort of extortion racket it is making is more and more likely that the world will move to a different reserve currency – very likely an internationally agreed artificial currency. Then the USA will find that international trading carefully avoids any contamination with the USA. New big international banks will rise which deliberately decide not to have a US banking license.

America will rue the way it threw away its advantage.

A law made by Congress is bad enough, but an order made by President is unjustifiable. It’s not about the law, it’s about Executive Order 13622

On July 31, 2012, President Obama issued Executive Order (E.O.) 13622, “Authorizing Additional Sanctions with Respect to Iran.” The E.O. authorizes Treasury to impose new financial sanctions on foreign financial institutions found to have knowingly conducted or facilitated certain significant financial transactions with the National Iranian Oil Company (NIOC) or Naftiran Intertrade Company (NICO), or any entities owned, controlled by, or acting on behalf of NIOC or NICO, for the purchase or acquisition of petroleum, petroleum products, or petrochemical products from Iran. These entities would be prohibited from opening or maintaining correspondent or payable-through accounts in the U.S. In addition, the E.O. authorizes Treasury to block the property and interests in property of any person determined to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC, NICO, or the Central Bank of Iran, or the purchase or acquisition of U.S. bank notes or precious metals by the Government of Iran.

Because OFAC has not issued corresponding regulations including general licenses, a number of typically generally licensed activities if conducted with NIOC, NICO and the Central Bank of Iran can now result in sanctionable activity. For example, specific authorization is now needed from OFAC before any person provides mail or telecommunications services to NIOC, NICO, or the Central Bank of Iran. Additionally, any intellectual property claims involving these entities also must be specifically licensed by OFAC – as must the provision of legal services. While these changes again reshape the sanctions landscape with respect to Iran, companies cannot expect a lengthy compliance grace period. Companies must therefore act quickly to assess their current operations, including those of their foreign subsidiaries and affiliates, and develop immediate plans to bring themselves into compliance. Given the lack of corresponding regulations, when in doubt, it may be appropriate to file requests for guidance and specific authorizations.

One of the worst possible outcomes of complying with U.S. tax law is having to deal with the expatriation tax when renouncing. Somewhere along the line, the conversation about this is going to HAVE to change for the obvious reason, that it is obscene, immoral and should be illegal for any country to insist on taking a significant portion of one’s assets, earned/established while resident in a different country, only to be able to be free of U.S. citizenship.

I have never seen a comment like this anywhere and the compliance industry should take a hard, long look at themselves, because when all is said and done, I think more than a few of them are going to find themselves in trouble.To apply 877A to anyone who renounced before 2008 is nothing short of criminal IMHO.

The comment below is a response to one that wonders why there have been no court challenges in the 8 years since 877A was passed.

Consider this:

“The idea of the USA going around the world and forcing the citizen/residents of other nations to pay a ransom – percentage of their net worth to the USA – to NOT be a US citizen (especially when those assets have nothing to do with the USA is absurd and should NOT be done.”

USCitizenAbroad says
September 5, 2016 at 2:07 pm
@Watcher

There are at least seven possible reasons why there has not YET been a court challenge – Note that is is relevant only with respect to “covered expatriates”/

1. People who are “covered expatriates” based on the net worth test are busy making themselves “non-covered” by reducing their worth and the filing the appropriate paper work (demonstrating that they are not covered);

2. I suspect (but have no direct evidence) that a lot of people are just renouncing (which terminates their U.S. taxability from that point on) and then just not filing. This is more likely if they are “covered expatriates” based on the asset test (> 2million USD). If people are “covered expatriates” because of the asset test, then why would they file the 8854 if the only reason to do so is to prove that they are compliant based on the 5 year tax filing test? Who knows what will happen with them?

3. There is the issue of those who are able to get a CLN based on a “relinquishing act” prior to June 3, 2004. For those who are able to get an actual CLN indicating a “relinquishment date” on the CLN of say (June 3, 1984), and they are covered based on the asset test, why would they file anything? Admittedly there are a few law firms who seem to believe (and are advising – beware) that the S. 877A rules are retroactive. But, there are others who are not sure or believe that they are not. So, why would somebody, who might not be subject to the S. 877 A Exit Tax, assume that they are and file? Why adopt an interpretation that leads to certain destruction rather than take a defensive position that is rational? My point is that in this case the failure to file the Form 8854 doesn’t affect whether they are covered or not.

4. What about those who are clearly “covered expatriates” and are NOT U.S. tax compliant. Well again, they are subject to the S. 877A Exit Tax rules regardless of whether they are U.S. tax compliant or not. Those people are probably (but again this is just speculation on my part) just lying low. Why would they file anything? There are many accidentals who have no Social Security number.

5. As you point out, the U.S. has different tax treaties with different countries. The Canada U.S. Tax Treaty includes in Article XXVI A – Assistance in Collection :

8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that
(a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and
(b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in the requested State.
In other words, some people may simply be saying: Too bad, so sad, not paying any exit tax. You might think I owe it, but Canada will not help you collect it.

6. The dual citizenship from birth exemption: The recent post about the “dual citizenship exemption” and South African apartheid reminds us that there are people (I suspect quite a few) who are exempt from the Exit Tax because of the dual citizenship exemption. In their case all they need to do is show tax compliance for five year …

7. Green Card Holders: We are not just talking about citizens. We are also talking about Green Card Holders. Green Card holders (because of somewhat different rules under the Internal Revenue Code coupled with treaty provisions) have more options available to defend themselves than do citizens. Those in the worst position are those who were born in the United States and have ONLY with U.S. citizenship.

In any case, I suspect that the reasons that we do not know of any treaty challenges are a combination of one or more of these reasons. Why get into into an expensive fight if there is a way to avoid it?

Defending yourself from the Exit Tax by using the Tax Treaties – Defensive position

With respect to a possible treaty challenge:

I am not sure that I would get overly technical about this. It surely was NOT the expectation of treaty slave/partner countries that they were signing a treaty that would allow the USA to confiscate the assets of citizens/residents of the treaty/partner country just because a person says he doesn’t want to be a U.S. citizen. That (in my view) is the primary defense and the rest is just gravy. The United States Court of Appeals (First Circuit) has recently ruled that the expectations of the treaty partner country are relevant in interpreting the treaty.
In any case, it is becoming increasingly clear that people will have NO choice but to renounce and to extricate themselves from this abuse. I emphasize again that a CLN (which is not granted by the IRS) is all that is required to end this nonsense on a prospective basis. Once the CLN is issued, I suppose people can decide as individuals whether they choose to turn their assets over to the IRS or not.

Defending yourself from the Exit Tax by using the Tax Treaties – Offensive position

It seems to me that challenging the Exit Tax based on treaty provisions is a last resort. Perhaps (at least from a Canadian tax treaty perspective), rather than challenging the Exit Tax with the IRS, one might consider using:

Article XXVI – Mutual Agreement Procedure

1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case in writing to the competent authority of the Contracting State of which he is a resident or, if he is a resident of neither Contracting State, of which he is a national.
This would be to use the Tax Treaty as a “sword” and not as a “shield”. Actually, this strikes me as a good idea. At least this will ensure that the Government of Canada is aware of this issue. They either will “go to bat” for Canadian citizens or will agree that Canadian citizens can be claimed by the USA and capitulate to the Obama administration. What this approach also does is puts the cost of raising this issue on the Government of Canada which makes it more doable.

In closing …

The idea of the USA going around the world and forcing the citizen/residents of other nations to pay a ransom – percentage of their net worth to the USA – to NOT be a US citizen (especially when those assets have nothing to do with the USA is absurd and should NOT be done

We’ve only just begun to appreciate how differently U.S. citizenship/taxation law affects Americansabroad differently, according to their country of residence. This is perhaps the most bizarre I have come across so far; dual citizenship denied on account of apartheid (i.e., a white South African could be dual at birth but not a black South African).

This guest post is written by Dominic Ferszt of Cape Town, South Africa. I first became aware of Mr. Ferszt when, in October of 2014, his post: The Accidental Tax Invasion” was published in Forbes. I have discussed various aspects of “citizenship-based taxation” with him since. I am very pleased that he has accepted my invitation to write this “guest post” for publication at Citizenship Solutions. His post exposes an aspect of “citizenship taxation” and the S. 877A U.S. expatriation tax that has not (as far as I am aware) been discussed before. Those who did NOT acquire “dual citizenship” at birth because of discriminatory laws (example British and Canadian laws saying that citizenship could be passed down from the father but not from the mother) will find this post extremely interesting and relevant.

Without further adieu …

Apartheid and the Accidental Taxpayer

How the United States Congress has passed legislation which imposes a tax obligation in accordance with the discriminatory policies of foreign nations; and how this might offer a glimmer of hope to millions around the world who feel unjustly targeted by FATCA or the IRS.

By Dominic Ferszt, Cape Town

In 2010, the United States Congress passed FATCA, or the Foreign Account Tax Compliance Act. Since that time, anyone with a bank account outside the U.S. has suffered some consequence.

FATCA requires all financial institutions outside the USA, notably banks and insurance companies, to review their records to identify possible evidence that customers may be U.S. taxpayers. Once identified, the financial institutions are required to report certain financial information; ultimately to the IRS.

This seemingly simple task has proven to be a complex compliance exercise costing the banks billions of dollars every year; and such perpetual expenses inevitably reflect in our bank fees. Perhaps the more brazen face of FATCA has been the requirement, by millions around the world, to go into a bank and sign a form declaring to the U.S. government (under penalty of perjury) that they either are, or are not, a U.S. taxpayer.

However, there is one group of people, likely numbering in the millions, whose lives have been unexpectedly and disproportionately shattered by the passage of FATCA. Some call them ‘Accidental Americans’, but what they have in common is some formal connection with the United States which they long ago abandoned. Perhaps they were born in America to foreign parents or overseas to U.S. parents, perhaps they studied or worked there in their youth, perhaps they emigrated long ago. Many of them do not even speak English. The problem they all share is that they (unknowingly) carried with them a perpetual obligation to pay U.S. tax after they returned home; unless they had performed some obscure and punitive expatriation process known only to a few U.S. tax scholars in ‘white shoe’ law firms. These individuals continue to be U.S. taxpayers (regardless of where they live in the world) because they are U.S. citizens. In the case of ‘foreigners’ who, under U.S. law, inadvertently acquired citizenship at birth, their tax obligation is arguably discrimination based on “national or social origin” or “birth” as articulated in the Universal Declaration of Human Rights.Continue reading Relinquishing US citizenship: South African Apartheid, the Accidental Taxpayer and the exit tax